Dismissed

FPA-FE-176/KOL/2003 of M/s. Ssk Export Ltd. v. The Deputy Director, Directorate of Enforcement, Kolkata

ATFP14 May 2024FPA-FE-176/KOL/2003

Case brief

AI extract

What is this about?

This order dismissed appeals against penalty impositions for Foreign Exchange Regulation Act contraventions. The court upheld findings that the appellant company and its director were liable for diverting exports from Russia to Dubai while misusing Rupee Credit funds, confirming the penalty amounts.

What did the court decide?

Penalties of Rs. 20,00,000/- and Rs. 5,00,000/- imposed on M/s SSK Export Ltd. and Shri Anoop Kumar respectively were confirmed.

FPA-FE-176/KOL/2003 of M/s. Ssk Export Ltd. Vs. The Deputy… — Company and Corporate | ATFP (2024)

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APPELLATE TRIBUNAL UNDER SAFEMA AT NEW DELHI

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(1)FPA-FE-175/KOL/2003 ShAnoop Kumar … Appellant

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(2)FPA-FE-176/KOL/2003 M/s. SSK Export Ltd. … Appellant

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Versus

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The Deputy Director, Directorate of Enforcement, Kolkata … Respondent

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Advocates/Authorized Representatives who appeared

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For the Appellants : None For the Respondent : Mr. Pankaj Pandey, For E.D.

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CORAM

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SHRI V. ANANDARAJAN, : MEMBER SHRI RAJESH MALHOTRA : MEMBER

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FINAL ORDER

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14.05.2024

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Through this order, we propose to dispose of the appeals filed by the above-mentioned appellants against the order of the Ld. Special Director of Enforcement, Enforcement Directorate, Government of India on 21.05.2003 imposing a penalty of Rs. 20,00,000/- upon M/s SSK Exports Ltd. the appellant, in FPA No. FE-176/KOL/2003, and Rs. 5,00,000/- upon Shri Anoop Kumar, Director of M/s SSK Exports Ltd., who is the appellant in FPA No. FE-175/KOL/2003.

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Relevant Facts in Brief

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2. The relevant facts leading to the aforesaid order of the Ld. Spl. Director of Enforcement briefly, are that a Show Cause Notice (SCN) dated 29.5.2002 was issued to the company S.S.K. Exports Ltd., along with its Directors Anoop Kumar, Prasanta Kumar Ray and Amir Akbar

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Khan, as also to another company, namely, Greenways Shipping Agencies Pvt. Ltd. and its Directors. However, in the two appeals which are the subject matter of this order, we are concerned only with the firstmentioned company, namely, M/s. S.S.K. Exports Ltd., and only one of its directors, namely, Shri Anoop Kumar. The allegation against S.S.K. Exports Ltd. was regarding contravention of the provisions of Sections 8(1), 48 and 49 read with Section 72(c) of the Foreign Exchange Regulation Act, 1973 ('FERA, 1973'). Shri Anoop Kumar, Director of the said company, was charged for the aforesaid violations in terms of the provisions of Section 68 of the said Act which provided that where a person committing a contravention of any of the provisions of that Act or of any rule, direction or order made thereunder is a company, every person who, at the time the contravention was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company as well as the company, shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly.

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3. The aforementioned SCN was issued based on information gathered by the Directorate that certain exporters were abusing the policies governing exports from India to Russia against repayment of Rupee credits, thereby causing large-scale loss of foreign exchange to the exchequer. The said information also revealed that these exporters resorted to over-invoicing of export consignments with the goods thereafter being offloaded and cleared in Dubai and the same never reaching the ultimate destination in Russia. The proceeds of such exports were realised from the state credits meant for payments against exports to the Russian Federation even though the payments on account

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of third-country exports were not permitted to be drawn from such funds. Information further revealed that M/s S.S.K. Exports Ltd., Kolkata was one such exporter involved in this form of exports. It was also alleged that the Russian buyers, namely,M/s Arina and M/s Termocostroiwere non-existent.

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4. Based upon the said information, enquiries were initiated by the Kolkata office of the Directorate against M/s S.S.K. Exports Ltd. The documents collected during investigations indicated that M/s S.S.K. Exports Ltd. had affected shipments in 1997 for a total value of Rs.1,91,37,094.70. The goods were initially meant for buyers in Moscow. However, the same were, thereafter diverted to Dubai and taken delivery of by M/s Indem General Trading LLC. Even though these consignments which were meant for Moscow were taken delivery of in Dubai, the proceeds thereof were realised by drawing funds from the State Credit scheme as per terms of the Letters of Credit (L/Cs) opened by the Russian buyers, M/s Arina, Moscow. The facts also indicated that M/s S.S.K. Exports Ltd. had otherwise acquired and transferred foreign exchange equivalent to Rs.1,91,37,094.70 to M/s Arina, Russia and M/s Termocostroi, Russia for arranging Letters of Credit without the permission of RBI contravening Section 8(1) of the FERA, 1973.

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5. The proceedings initiated vide the above-mentioned SCN culminated in the imposition of the aforesaid penalties of Rs. 20,00,000/- upon the company M/s S.S.K. Exports Ltd. and Rs. 5,00,000/- upon Shri Anoop Kumar, Director M/s S.S.K. Exports Ltd. based upon the finding that the charges against them stood proved.

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6. Aggrieved by the said order of the Ld. Special Director, (the adjudicating authority) the two appellants filed appeals before the then Appellate Tribunal for Foreign Exchange (ATFE), which has since been merged with this Appellate Tribunal. This Appellate Tribunal disposed of the appeals vide an order dated 21.11.2018, whereby the quantum of penalty imposed upon M/s SSK Exports Ltd. was reduced to Rs. 10,00,000/- (from Rs. 20,00,000/-) and the penalty imposed upon Shri Anoop Kumar was reduced to Rs. 2,00,000/- (from Rs. 5,00,000/-). The said single-member bench order of the Appellate Tribunal was challenged by the appellants before the Hon’ble Calcutta High Court. The Hon’ble High Court, in their order dated 14.02.2019, observed that the order lacked proper analysis of issues and proper findings, set aside the same, and remanded the matter back to this Appellate Tribunal for de novo adjudication.

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7. In pursuance of the directions of the Hon’ble Calcutta High Court, the matters were listed for hearing on various dates but could not be heard on merits primarily on account of the Covid-19 pandemic, the inability expressed on several occasions by the learned counsel for the appellant, who is a senior citizen, to travel to Delhi from Kolkata, and the subsequent lack of coram in this Appellate Tribunal due the absence of incumbents in the posts of Chairman and Members.

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8. After this Appellate Tribunal started functioning in August 2022, the matters were once again listed for hearing on a regular basis on various dates. None appeared for the appellants on 12.09.2022, 05.12.2022, 16.01.2023, 15.03.2023, 16.07.2023, 02.11.2023 and 14.02.2023. However, vide letters dated 12.01.2023, 21.07.2023, and most recently on 21.07.2023, the appellants have expressed their no-

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objection to the matters being disposed of on the basis of the written submissions sent by them on 03.10.2020. The matter was listed for hearing for the last time on 14.02.2024. None appeared for the appellants on that day also. However, taking note of the difficulty repeatedly expressed by the learned counsel for the appellant in travelling from Kolkata as well as the appellant’s request to dispose of the matters on the basis of written submissions filed earlier, the matters were reserved for orders on that day.

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Arguments on Behalf of the Appellants

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9. Detailedsubmissions have been made on behalf of the appellant touching upon both factual and legal aspects of the case. Explaining the factual context of the case, it is submitted that the appellant company was an exporter of tea to various countries, including Russia. The appellant exported tea to a Russian buyer, namely, M/s. Arina who nominated the shipping Company Uniglory Line (Uniglory Marine Corporation) and, therefore, all shipments were made through the said Uniglory, being the shipping Company nominated by the foreign buyer. Uniglory Marine Corporation is a foreign shipping company carrying on the business of carriage by sea.

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10. It is submitted that the appellant exported about 65 consignments of tea to Moscow, out of which dispute is in respect of 15 consignments, alleging that goods did not reach Moscow. The questioned consignments were shipped to Moscow under the scheme of export of goods and services against repayment of State Credit granted by the erstwhile Soviet Union which were to be utilized for export of goods to the Russian Federation only. It is submitted by the appellant that the original Bills of Lading of each of the 15 consignments (copies filed) were routed through

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the nominated bank in terms of the RBI Circular No. 30 of 1993 and Letter of Credit (L/C) was opened by the said foreign buyer. It is explained that an L/C is opened by an L/C opening Bank after getting a consideration. Under the said Scheme, as per the RBI Circular, the Bank for Foreign and Economic Affairs, Moscow (BFEA) was to issue the L/C to any of the nominated banks. One such nominated bank was the United Bank of India, Ernakulam Branch. The said bank, after receiving the L/C, was required to have a confirmation from RBI of deposit from the Deposit Account Department, Mumbai before advising the opening of L/C to the beneficiary constituent. This could be done after the funds of L/C are made available which would mean that the L/C opening bank was to make the fund available for L/C for which the L/C opener was required to pay. In each of the Bills of Lading, the ‘Port of Discharge’ is mentioned as Moscow, and the port of loading is Cochin.

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11. It is further submitted that since Moscow is a dry port, for the purpose of delivery, goods have to be unloaded at any other port as decided by the shipping company. Normally, for the shipment for Moscow, the consignment is unloaded at Kotka port in Finland. Each of the Bills of Lading was duly negotiated with the Bank and it was presented by the United Bank of India to the L/C opening Bank in Moscow after which the L/C opening bank at Moscow endorsed the Bill of Lading (BL) in favour of the transferee at Moscow. This transfer was done. It is submitted by the appellant that these facts are not in dispute.

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12. It is also submitted that under international law, a transferee of the BL is entitled to deal in the goods by transfer of the same. International law authorizes a transferee and BL holder to also get a ‘Switch BL’, from the shipping company. Delivery of BL is delivery of goods. The obligation

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of the consigner (exporter) is over as soon as the bill of lading is issued under an L/C mentioning the details of the L/C and sent to the foreign buyer. Thereafter, an exporter has no right of any nature whatsoever on the goods. It is further submitted that a shipping company cannot divert any article unless and until another BL is issued and the contract of carriage in the first BL is repudiated by the cancellation of BL. Diversion cannot take place otherwise and it would amount to a breach.

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13. It is submitted that in the present case, the shipping company, Uniglory, had initially made a false statement that when the shipments were lying at Colombo, it got information of diversion of goods to Dubai and they did it on the basis of an oral statement. In the course of the adjudication proceedings, however, it came out with the story of a fax being received from the appellant, on the basis of which the goods were diverted from Colombo to Dubai. The appellant submits, however, that the following facts were proved in the course of the adjudication proceeding;

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That the goods were never shipped or were never lying at Colombo for transhipment, Colombo was not a port of call and the story that goods lying at Colombo was untrue

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That the so-called fax letters were also fabricated which is evident from the fact that in each of the cases, the fax date was prior to the date of departure of the vessel from Cochin Port and the vessels were at their berth at Cochin Port on the dates of alleged fax

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That when the vessels were waiting at Cochin port, not having been permitted to leave under the Customs Act, 1962, the goods could not be in Colombo, there could not be any request for diversion when the goods were at Cochin only

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In the Income Tax Returns (ITRs) filed, the shipping company mentioned that the shipment was up to Dubai and paid income tax up to Dubai only, and did not pay tax up to Moscow. Such ITRs are filed before the vessel is permitted to leave and the shipping company has to pay tax upfront. Thus, this was a clear case of income-tax avoidance by the shipping company

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The shipping company filed manifest on the basis of which it was permitted to leave Cochin port. In the said manifest the place of discharge of cargo is mentioned as ‘Moscow in transit Dubai’

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14. It is contended that under the Indian Bill of Lading Act, 1856, the Bill of Lading will represent the title of the goods, and Bill of Lading in the hands of the consignee is conclusive evidence of shipment as against the master. The RBI, in reply to an RTI query, has answered that the obligation of the exporter under the subject Circular is completed after the BL is issued and negotiated through the nominated bank. After the export is effected and the Bill of lading is issued, the international law governing the contract becomes operative. Under international law, BL enables the person holding it to dispose of the goods while the goods are in transit. An extract from Schmitthoff's ‘Export Trade: The Law and Practice of International Trade’ 2000 edition has been has been submitted to substantiate the submission, as also a copy of the RTI reply of RBI referred to above.

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15. It is submitted that the appellant has fulfilled all its obligations. The liberties of the foreign buyers who purchased the goods under L/C and paid for the same, could not be controlled by the municipal laws of India. There is no reservation under the Sale of Goods Act or under the

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Contract Act, or under any municipal Act in India under which, after sale, a seller can reserve right on the goods as to its disposal.

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16. It is further contended that the RBI Circular, the breach of which is alleged, also does not, in any manner, cast a mandate on the buyer that the goods are required to be consumed in Russia. On the contrary, the circular says, "funds from repayment of state credits are to be utilized for export of goods to Russian Federation only. No third country exports are permitted out of the funds from such repayment of state credit". It is also pointed out that the circular has been issued under Section 73(3) of the Foreign Exchange and Regulation Act, which is for the banker, and the shipping company. Section 73(3) of the Foreign Exchange and Regulation Act does not apply to the exporter.

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17. It is contended that admittedly the B/Ls were negotiated and delivered at Moscow by the Bank. It meant delivery of the goods at Moscow and the conditions prescribed by the Circular were fulfilled. There is no compelling power in Indian statute to enforce that goods should be consumed in Russia. The foreign buyer was free to sell the goods from Moscow. It could do a third-party export, sell locally, or reexport the goods as it felt proper.

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18. Explaining the legal position under Common Law, it is submitted that under the English law, the legal proposition is that Bill of Lading is the evidence of title which needs to be produced for any deviation if so required. If the Bill of Lading is not produced, neither delivery can be made nor the shipping company has any obligation to the consignee. The decision in Truck and Spare Ltd. reported in All England Report Vol.2 1951 (page 1982), is relied upon.

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19. It is also submitted before us that deviation is impermissible under the international law of carriage. The Hague-Visby Rules, Article IV, Rule IV, prohibits deviation except for saving life and property. Deviation is treated as a serious breach and undermines the prime duty to the shipper of the cargo. The decisions in Glynn vs. Margetson 1983 AC 351 and Leduce vs Wards 1888 20 QBD 475 are referred to.

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20. It is contended that the learned adjudicating authority itself has disbelieved the story of the shipping company. After holding the story of the shipping company to be a cock and bull story, the adjudicating authority, contrary to its own finding, imposed a penalty on the appellant by revisiting the facts which were held by him to be a cock and bull story. As such, it is contended, that the order of the learned adjudicating authority was perverse.

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21. It is further submitted that the order of the learned adjudicating authority, on the face of it, was bad also because it ignored the handwriting experts' opinion produced by the appellant. The learned authority held that the same is of no use as the original had not been identified and is not proved. The appellants contend that if the original signature is not identified and not proved, in that case the adjudicating authority could not have relied upon fax which he has himself disowned.

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22. It is also contended that the exporter is not liable for any action of the foreign buyer and the shipping company after the negotiation of the documents. The export to Russia is completed when the vessel leaves bound for Russia and it is shown in the manifest, which was the position in the present case. In the subject case, manifest shows that vessel was granted leave to depart from the Indian shores at Cochin with a

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declaration that the goods were bound for Moscow via Dubai in transit. This is declared in the manifest which is an admitted document. The destination Moscow in transit Dubai having been filed by the shipping company in its manifest, on the basis of which they got the permission to leave Cochin port and got clearance order from customs authorities, it could not have been changed on the basis of such concocted facts or oral communication or otherwise. It would require substitution, i.e., cancellation and reissue of B/L. The B/Ls generated at the time of delivery of the goods have no signature or authentication.

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23. It is further contended that under the international covenant, the foreign buyer is entitled to deal in the goods and the Indian seller cannot do anything and, therefore, he cannot be liable. The Supreme Court has held that no condition which a person cannot possibly comply would will be applicable and the legal maxim lax non cogitadimpossiblia is applicable as has been held in the case of Raj Kr. Dey and Ors. vs. TarapadaDey and Ors. reported in 1987 SCC 398.

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24. The foreign buyer having taken delivery of B/L from Russian Bank, delivery of the goods at Moscow is proved. Section 8 of FERA cannot be invoked on the basis of the presumption that off-loading of goods at Dubai would mean getting the money from Dubai. This inference is perverse and without reasons and material.

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25. No case of receipt of foreign exchange under Section 8 has been made. A presumption has been drawn based on the mere landing of the goods at Dubai without being any logical proposition leading to such inference.

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26. It is also submitted that the appellant has cited several instances which have been accepted by the authorities and are part of the relied upon documents wherein certain shipments exported by the appellant were sold by the transferee of the goods at Kotka port and the consignor and consignee changed and goods were thereafter delivered at Moscow by a new buyer and sold to a new customer. Such documents are available in the bunch of the documents relied upon the Show Cause Notice. For ready reference few instances of such nature are annexed and marked "C" collectively. These documents show that in any international trade, buyer can take delivery of goods at any place, by requesting the shipping company to get delivered the goods and get a new switch BL issued.

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27. In the light of the above, it is submitted that the case against the appellant for breach of the RBI Circular is not sustainable and the appeal, therefore, should be allowed. It is also contended that the penalty in any event is excessive when there is no fault of the appellant.

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28. It is also contended that the impugned order is even otherwise bad for the following reasons:

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(1) The adjudicating authority did not consider the submissions that, a) Section 73(3) of FERA had no applicability against the appellant, b) the circular of RBI did not apply to the appellant, c) the circular is not gazetted or notified, d) the show cause notice could not have been proceeded with as it was received by the appellant on 03.06.2002 and protection of Section 49(3) of the FEMA was not available

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(2) The Adjudicating authority gave no finding on the charges made in the show cause notice which were under Sections 8, 68, 72(c) read with Section 68 of FERA. In paragraph 73 of the Order an omnibus statement

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is made that he finds that both M/s S.S.K. Exports Ltd. and M/s. Greenways Shipping Agencies Pvt. Ltd. contravened the provisions of the FERA, 1973 and RBI notifications as detailed in the SCN."

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(3) The adjudicating authority has given self-contradictoryfindings insofar as in paragraph 37 of the order it held that the consignments were diverted but in paragraphs 64, 68 and 69 it held that the story of diversion is a fabricated story. It further contradicts in paragraph 71

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(4) The order is based on the conjecture that diversion of consignments in hard currency area would generate hard currency.

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Arguments on Behalf of the Respondents

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29. The respondents have contested the arguments put forward on behalf of the appellant. Firstly, the modus operandi of abuse of the State Credit scheme by certain exporters has been emphasized upon. It is contended that the present appellant, M/s S.S.K. Exports Ltd., was one such exporter involved in the alleged form of export to M/s Arina and M/s Termocostroi. The appellant company was exporting tea to Moscow against the L/C opened by the Bank of Foreign Economic Affairs (BFEA), Moscow in the appellant’s favour against the state rupee credit scheme. It is pointed out that as per Clause 2(vi) of the RBI Circular, funds from the repayment of state credits are to be utilized for the export of goods to the Russian Federation only. No third-country exports are permitted to be financed out of the funds from such repayments of state credits. In the present case, the shipping line diverted the goods from its destination of Moscow to Dubai and the exporters deliberately exported to a hard currency area and thus contravened the provisions of the RBI Circular as well as the provisions of FERA, 1973. Indian Bills of Lading Act, 1856

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Section 3 states that "Every B/L in the hands of a consignee or endorsee for valuable consideration representing goods to have been shipped on board a vessel, shall be conclusive evidence of such shipment”. Further, even though these consignments were meant for Moscow and were unloaded at Dubai, the proceeds thereof were realized by drawing funds from the Rupee Credit scheme solely meant for export to Russia. Dubai is a hard currency area, and, therefore, the payments should have been received in hard currency. Instead, the exporter received the payments through the Rupee Credit Scheme of Russia. The appellant, by diverting consignment to Dubai, generated hard foreign currency in Dubai and, therefore misused the said scheme.

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30. Collusion between the appellant company and Greenways Shipping to carry out transactions in violation of FERA, 1973 is alleged. It is contended that the documents received from the Shipping Agent M/s Greenways Shipping Agencies Pvt. Ltd. revealed that the consignments of a total value of Rs. 1,91,37,094.70/- were diverted to Dubai on instructions of the exporter (the appellant company) vide written requisitions dated 16.09.1997, 24.09.1997, 31.10.1997 & 26.11.1997. Paragraph 71 page 43 of Adjudication order are relied upon in this regard. It is submitted that the said delivery was taken by M/s. Indem General Trading (LLC), Dubai who was the agent (or authorised representative) of the exporter.

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31. Our attention is invited to paragraph 71 of the impugned order Ld. AA has recorded in its finding that "the exporter has failed to furnish any documentary evidence to show that M/s Arina Moscow or M/s Thermoecostroi, Moscow (notified party in the case) received the cargo". As per the export consignments, the LC opener was M/s Arina, Russia

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and the goods were consigned to M/s Termocostroi, Russia. It is important to note that the existence of the Russian buyers is questionable, the appellant has failed to establish that goods were delivered to the buyers and, therefore, they acted in defiance of the policy/regulation. That, the conduct of the appellant is questionable, and on bare pursuing record it becomes transparent that the appellant colluded with others to gain benefits by changing the route which resulted in causing loss to the exchequer. There is no proof that the alleged cargo reached Moscow, produced before the Ld. AA.

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32. It is contended that the fact of offloading of the consignment in Dubai was accepted by both the shipper and shipping agent. The shipping agent issued Bills of Lading as if the goods were to be shipped to Moscow, but covertly delivered the consignments in Dubai thereby facilitating the exporter in the latter's illegal designs.

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33. As regards the appellant’s allegation of forgery, Also, our attention is invited to the fact that the learned adjudicating authority has clearly mentioned in the order that the handwriting expert's opinion was irrelevant as it was not known who had signed the letters as they were only initials and the expert's opinion did not throw any light on this. That, the change of route and delivery of the cargo at Dubai (a hard currency country) instead of Moscow resulted in the contravention under FERA, as the goods meant for Russia were off-loaded and taken delivery of at Dubai and the same were sold at Dubai against Foreign Exchange, the said foreign exchange was acquired by the appellant and then was transferred to Russia, without the special or general permission of the RBI, to a person resident outside India. That, the statement of Prasanta Ray (company Director) recorded on 25.02.2002 stated that he was

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working as per the direction of the Principal Officer of the company, that the regulatory mechanism provided by FERA imposes strict liability where motive or intention is not relevant. The facts and the circumstances of the present case establish negligence done by the Appellant and the appellant company.

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34. With regard to the appellant in FPA-FE-175/KOL/2003, namely, Shri Anoop Kumar, it is submitted on behalf of the appellant that in Standard Chartered Bank v. Directorate of Enforcement, (2006) 4 SCC 278 it was held that Section 68 of FERA relating to offences by companies, by sub-section (1) introduces a deeming provision that the person who was in charge of and was responsible to the company for the conduct of the business of the company, shall also be deemed to be guilty along with the company of the contravention of the provisions of the Act and liable to be proceeded against and punished accordingly. The proviso, no doubt, indicates that a person liable to punishment could prove that the contravention took place without his knowledge or that he exercised all due diligence to prevent such contravention. Sub-section (2) again speaks only of a contravention of the provisions of the Act and the persons referred to in that sub-section are also to be deemed to be guilty of the contravention and liable to be proceeded against and punished accordingly. That, the directors of the company are liable to be proceeded against as they had the knowledge of the said direction and have acted in the derogation of the provisions of the rules under FERA, 1973 with the company.

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Analysis and Findings

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35. We have given careful consideration to the material before us and the rival contentions of the parties. The undisputed facts emerging from FPA-FE-175 & 176/KOL/2003 16

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the record as well the arguments presented from both sides are, firstly, that during the relevant period, the appellant company was exporting tea to Moscow against the L/Cs opened by the Bank of Foreign Economic Affairs (BFEA), Moscow in the appellant’s favour against the State Rupee Credit Scheme. It is also indisputable that as per the RBI Circular, funds from the repayment of state credits under the Scheme were to be utilized for the export of goods to the Russian Federation only and no thirdcountry exports are permitted to be financed out of the funds from such repayments of state credits. It is also not in dispute that in the case of the 15 consignments exported by the appellant company which are under dispute, goods were in fact, diverted from their original destination of Moscow to Dubai, which is a hard currency area. There is no evidence on record to show that it was further shipped from Dubai to Moscow or any other destination in the Russian Federation.It is also not open to dispute that even though the goods were delivered at Dubai, the proceeds thereof were realized by drawing funds from the Rupee Credit Scheme which, as already stated, was meant only for export to the Russian Federation. On the face of it, therefore, violation of the RBI Circular and consequently, of the provisions of FERA, 1973 are apparent on the face of the record. The question that remains to be determined is the extent of culpability, if any, of the appellant, M/s S.S.K. Exports Ltd. which would render the said company liable for imposition of penalty under the said Act. If the said company is found to be culpable for the contravention, consequences under section 68 would follow so far as its Director, Shri Anoop Kumar is concerned.

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36. In this regard, the learned adjudicating authority, after a detailed discussion of rival contentions of parties, came to the conclusion that the

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shipments were diverted to Dubai and delivered to M/s Indem General Trading LLC instead of the original Russian consignee, based on written instructions from the exporter, i.e., the appellant company M/s SSK Exports Ltd. The contention of the appellant company in this regard is that letters stated to have been written by them to the shippingcompany asking them to divert the consignment and deliver the same at Dubai to M/s. Indem General Trading LLC were forgeries. We find that this issue has been dwelled upon at length by the learned adjudicating authority. It would be beneficial to refer to the relevant paragraph of his order which reads as below:

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“64. I am unable to accept the contentions of M/s S.S.K. Exports Ltd. that they did not issue letters of request for diversion of the cargo in support of which a handwriting expert's opinion was submitted. To my mind, any such handwriting opinion, in the instant case, is not relevant. An opinion of handwriting expert is acceptable only if the writer's handwriting on a document is compared with that of the questioned document, i.e. identification of the person who generated that questioned document is an essential ingredient. M/s Greenways' version is only to the extent that they had received letters from M/s S.S.K. Exports Ltd. The question as to who wrote or issued these letters does not, therefore, come for evaluation. As far as the shipping agent is concerned, letters received on the shipper's letter-head alongwith complete details of the shipment container nos., voyage no., name of the like vessel etc. appear sufficient enough to impart credibility or authenticity to these letters. The handwriting expert's opinion would have assumed relevance only if the writer of the document was identifiable and such person's handwriting thereafter examined with reference to the questioned documents. In this case, the writer of the letter being not identified, the question of doubting the authenticity of the letters as disputed by the exporter and suspecting the genuineness thereof does not arise more so, because by diversion of cargo to Dubai instead of the original destination, Moscow, the shipping company suffered loss due to reduced collection of freight amount. In this context, the shipping agent has furnished copies of documents furnished before the Income Tax authorities and RBI,

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indicating, inter alia, that freights collected in respect of the said containers were only for Cochin Dubai and that the freight amounts were collected in Dubai as the consignments were on FOB basis. On the contrary, M/s S.S.K. Exporters Ltd., by diverting consignments to Dubai, a hard currency country, generated hard foreign currency in Dubai, and by further availing the facility of Rupee Credits misused the scheme inasmuch as such funds can only be utilised for realisation of payments against exports to Russia. Viewed in this perspective, I am inclined to infer that the containers were diverted to Dubai only on instructions of the exporter who benefitted from the said diversion of goods. The shipping agent was rather placed at a disadvantage because of this diversion in terms of less revenue. The exporter can not, therefore, absolve itself from the responsibility of cargo diversion.”

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37. In para-71 of the said order, the learned adjudicating authority has further elaborated upon his findings as follows:

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“71. During the course of personal hearings, M/s S.S.K. Exports Ltd. put forth detailed submissions (oral as well as written), the crux of which was that the letters dted 16.09.1997, 24.09.1997, 26.11.1997 and 31.10.1997 requesting for diversion of the cargo to Dubai were all forged and, in fact, were not issued by the exporter. In an attempt to susbstantiate this claim, the noticee exporter drew attention to the Fax No. 0484 668219 prinated on top of these letters as that belonging to „M/s Greenways‟ Cochin. According to the exporter, this fact together with the handwriting expert‟s opinion would prove that these letters originated from „M/s Greenways‟ office. In regard to the aforesaid contention, I do not find that these letters were certainly in the nature of fax messages and submitted initially by Shri P. Sengupta, General Manager of M/s Greenways, Kolkata and, thereafter, copies of the said letters were furnished on various occasions during personal hearings/written submissions. If the Kolkata office of 'M/s Greenways‟ called up its Cochin counterpart and requisitioned copies of these letters, it is but natural that the said letters would reflect the fax number of Cochin office of M/s Greenways. In view of the trends noticed during the course of adjudicating hearings, I would tend to believe that the exporter‟s provocation for coming up with the cliam about the letters being forged was actuated by ulterior motives to misrepresent that no directions were conveyed to the shipping agent

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FPA-FE-175 & 176/KOL/2003

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for diverting cargo to Dubai. Interestingly, the fact of off-loading consignment in Dubai stands conceded & accepted by both the shipper as well as the shipping agent. The dispute is to the effect that while the shipping agent claimed that the cargo, eventhough initially booked for Moscow, was subsequently ordered to be unloaded in Dubai on the shipper‟s directions, the shipper‟s defence is that it had booked the cargo for Moscow but, however, during transhipment, the containers were off-loaded by the shipping agent in Dubai. Nevertheless, the fact remains that the exporter failed to furnish any documentary evidence to show that M/s Arina, Moscow or M/s Termoecostrol, Moscow, (notified party in the case) received the cargo. I am amazed to find that, in spite of non-delivery of goods, the proceeds have been drawn against the L/C from the Rupee Credit Fund. Even after assuming without necessarily conceding the exporter‟s claim that the goods did nto reach buyers in Moscow inspite of booking for Moscow, the normal logical course of action ought to have been for either of the parties, viz. M/s S.S.K. Exports Ltd. or M/s Arina, Moscow, to file a case against the shipping company for claiming damages. No such action has been taken in this case. All the three parties involved in the transactions – the shipper, the shipping agent and the consignee – did not appear to have so far had any grievances or complaints against each other but, however, disputes surprisingly arose only after initiation of enquiries by the Enforcement Directorate. It is pertinent to note that the transactions in question relate to the year 1997.

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38. In para-72 of the impugned order, the learned adjudicating authority has further recorded as follows:

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“72. During the course of investigations, M/s S.S.K. Exports Ltd. was requested to furnish copies of the L/Cs; contract with the foreign buyers and other export documents. The company, vide letter dated 29.12.2001, apprised about its inability to trace some of the records like contract/agreement and correspondence with the foreign buyers, M/s Arina, Mowcow because of shifting of its office premises. Nonsubmission of such important documents like contract/agreement and other records has to be held against the noticee exporter. With the availability of contract/agreement documents, the terms of delivery etc. could have been easily ascertained. The presumption of motive

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FPA-FE-175 & 176/KOL/2003

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has to be held agains the exporter for his failure to submit these relevant documents.”

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39. Having given our careful consideration to the above factual findings of the learned adjudicating authority, we find ourselves substantially in agreement with his conclusions. Upon perusal, the letters in questionappear to be authentic in all respects. As pointed out by the learned adjudicating authority, they are on the appellant company’s letterhead, mention all the essential details such as the shipment container number, voyage number, name of the like vessel etc. The charge of forgery is a serious one under law. No facts have been placed before us to indicate that any criminal complaint was filed by the appellant against the shipping company for the alleged forgery and if so, what was the fate of the same. The learned adjudicating authority has also referred to the fact that delivery of the cargo to Dubai instead of Russia was in fact, against the commercial interest of the shipper as it would result in reduced freight charges, unless, of course, the shipping company, was in collusion with the exporter and benefitted by diverting the cargo to a hard currency area in order to generate hard foreign currency in Dubai on the one hand and at the same time also realised payment in rupees under the state credit scheme for export to Russia.

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40. We have also taken note of the observation of the learned adjudicating authority that in the event the exporter really intended that the goods should be delivered at Moscow only and the goodsin fact did not reach Moscow but were delivered at Dubai, the logical course of action on the part of the exporter (the appellant company) or the importer (M/s Arina, Moscow) ought to have filed a case against the shipping company for claiming damages, but no such action was taken

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FPA-FE-175 & 176/KOL/2003

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by either of them in this case. He has further observed that all the three parties involved, namely, the shipper/exporter, the shipping agent, and the consignee appear to have had no grievances or complaints against one another until the initiation of enquiries by the respondent Directorate. From all these facts, it cannot be ruled out in our view that all three parties were complicit in the entire episode. Alternately, it is also possible that the Russian importers, whose very existence has been doubted by the respondent Directorate, are not even genuine parties and were mere paper entities. It is evident that the blame game between the exporter and the shipping agent started only after investigations were initiated into the alleged fraud. Therefore, not much credence can be given to the appellant’s submission laying all the blame at the shipping company’s door. We do not, however, wish to express any final view on the matter as the present case pertains only to the shipper/exporter company (and its Director) and the other two parties in the equation, namely, the shipping agent and the Russian importer are not before us in the present appeals.

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41. We have held above that having completed all the paperwork for export to Russia and loaded the consignments for shipment, the appellant company itself superseded its earlier instructions by issuing fresh instructions by way of the letters in question to deliver the cargo at Dubai to M/s Indem General Trading (LLC), Dubai. In the above view of the matter, none of the other issues raised by the appellants holds any merit in our view since export to Russia, the key precondition under the RBI Circular for drawing funds under the state credit scheme, was not complete as against the appellant company.

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FPA-FE-175 & 176/KOL/2003

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42. The inability expressed by the appellant company vide its letter dated 29.12.2001 to furnish copies of the L/Cs, contract and correspondence with the foreign buyers, and other export documents on the pretext that the same could not be traced out because of shifting of the office premises further strengthens our view in the matter.

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43. In sum and substance, we are of the view that the culpability of the appellant company is adequately established on the preponderance of probabilities, rendering them liable for imposition of penalty under FERA, 1973.

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44. As regards the appellant in FPA-FE-175/KOL/2003, namely, Shri Anoop Kumar, it is not in doubt that he was a director of the company at the relevant time. Section 68 of FERA, 1973 reads as below:

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“68. (1) Where a person committing a contravention of any of the provisions of this Act or of any rule, direction or order made thereunder is a company, every person who, at the time the contravention was committed, was in charge of, and was responsible to, the company for the conduct of business of the company as well as the company, shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly:

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Provided that nothing contained in this sub-section shall render any such person liable to punishment if he proves that the contravention took place without his knowledge or that he exercised all due diligence to prevent such contravention.

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(2) Notwithstanding anything contained in sub-section (1), where a contravention of any of the provisions of this Act or of any rule, direction or order made thereunder has been committed by a company and it is proved that the contravention has taken place with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly.

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FPA-FE-175 & 176/KOL/2003

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Explanation. For the purposes of this section--

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(i) "company" means any body corporate and includes a firm or other association of individuals; and

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(ii) "director", in relation to a firm, means a partner in the firm.”

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45. We find that in the impugned order, the learned adjudicating authority has recorded that no attempt was made on behalf of the exporter company, at any stage, neither during the course of investigations nor at the time of adjudication proceedings, to identify the functionary who negotiated the export transactions in question. On the contrary, the plea was made to the effect that records were misplaced while shifting of office. Even during the course of hearings, noevidence was presented to distinguish the specific roles of the Directors and other persons in charge of the affairs of the company. The learned adjudicating authority was of the view that important export deals of such nature are normally decided in the Board meetings in the presence of all directors. Viewed in this perspective, the culpability for the transactions in question converge at the level of the directors of the company. Accordingly, he held the three directors of the company, namely, Shri Arun Kumar, Shri Prasanta Kumar Ray and Shri Amir Akbar Khan liable for the violations in terms of Section 68 of FERA, 1973 in relation to the appellant company, M/s S.S.K. Exports Ltd.

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46. As already stated, in this order, we are only concerned with one of the three directors, namely, Shri Arun Kumar. We find that no separate arguments have been presented challenging the penalty imposed upon Shri Arun Kumar over and above the arguments and contentions raised on behalf of the company which we have already dealt with in detail in this order. Needless to say, the penalty imposed upon the director was a FPA-FE-175 & 176/KOL/2003 24

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direct consequence of the penalty imposed upon the company. No material has been placed before us to indicate that Shri Arun Kumar, Director,was not in charge of, and was not responsible to the company for the conduct of business of the company at the relevant time. Accordingly, we hold that Shri Arun Kumar, Director of M/s S.S.K. Exports Ltd., is also liable for imposition of penalty in view of the aforementioned Section 68 of FERA, 1973. Further, considering the nature of the contravention and the amount involved, we are of the view that the amount of penalty imposed is reasonable. Accordingly, we confirm the penalty of Rs. 20,00,000/- imposed upon the company which is the appellant before us in FPA-FE-176/KOL/2003, as well as the penalty of Rs. 5,00,000/- imposed upon its Director Shri Anup Kumar, the appellant in FPA-FE-176/KOL/2003.

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47. With the above orders, the aforesaid two appeals shall stand dismissed.Pending application, if any, stands disposed of.

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No order as to costs.

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Appeal Dismissed.

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(Rajesh Malhotra) (V. Anandarajan) Member Member

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(V. Anandarajan)

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New Delhi, 14th May, 2024 ‘AB’